Editor's note: Formerly, Chris Schumacher's short trading ideas were available only to subscribers to TheStreet.com's Short Advisor. Now these picks are being offered to RealMoney and TheStreet.com readers.
Biotech Alkermes ( ALKS) did not enjoy a strong 2006, and the stock still looks like a potentially winning short trade. The share price fell from $26 in March to a low of $12.95 in September. Then when the broader market began to climb out of the third-quarter doldrums and moved higher into the end of the year, Alkermes' tried to participate. The stock managed to make a reversal to a high of $17.60 at the end of October. However, as the broader market continued to mount higher in November and December, this stock failed miserably and instead retested its September lows. Selling pressure still appears to be heavy in Alkermes, and a break of its September support around $12.95 should yield further lows. Since August, the $15 level appears to be where most of the price reaction occurs in Alkermes. In September, a range formed for a few days at this level before the share price broke lower to $12.95. At the end of October, after tumbling down from the $17.60 high, the price held this level and formed a lower high. Then in November this level was tested again and held as support. Again, this move led to another lower high. Finally, the $15 level was broken at the end of November, pushing the stock down to where it is currently trading, closing at $13.37 Friday. What was once support should now be resistance, and could set up an attractive short trade. If Alkermes' stock price retests this $15 level, that action would offer the short entry.
|Alkermes (ALKS) -- Daily |
Recapping Previous PicksA number of short ideas that I've outlined for readers of the Short Advisor remain open. Here's where those trades stand:
- Biotech HOLDRs (BBH) set up the week before Christmas with an entry at $184. The stop remains $189, and the profit target is at $179 to satisfy the 1-to-1 reward/risk scenario. This short trade is based on a descending triangle pattern on the exchange-traded fund's chart. This type of formation generally favors the bears.
- ENGlobal (ENG) has not yet set up. The engineering company's stock did not participate in the broad market rally this fall, but rather continued to trade near its lows -- and further downside looks likely. The ideal entry strategy for ENGlobal would be to see its price move back up to $7.05. The stop would then be placed at $8.25, for $1.20 in risk. The profit target would be at $5.85 to satisfy the 1-to-1 reward/risk ratio. Note, however, that if ENGlobal's share price moves below $5.80 before offering an entry, this trade setup is no longer valid.
- Harvest Natural Resources (HNR), a natural gas and oil stock that's been stuck in a downtrend channel since August, also has not set up yet. The ideal setup for this short trade is gain an entry at $11.35, with a stop placed at $12.15. This offers 80 cents in risk. The first profit target would be $10.55 to serve the 1-to-1 reward/risk scenario, and a second profit target would be placed at $8.50. If Harvest Natural Resources' price moves under $9.50 before offering an entry, though, this trade setup is no longer valid.
- NovaGold (NG), a gold play, remains open with the entry at $15.90. The stop is $18.10, which offers $2.20 in risk. In this setup, I have been looking for a gap left from August to fill on a downtrend move. So the first profit target is at $13.70, with a final profit target at the gap-fill level of $12.25.
- Salesforce.com (CRM) set up in mid-December with an entry at $40.50. Shares of the business software company had a strong run from August to November, but then failed to break through resistance. The first profit of $38.90 has already been reached, and the stop was lowered to $41.50 on the remaining position. The next profit target is $33, and the final profit target will be $28.60, which is the area that will fill the gap left open from August.